The banking and finance industry has been among the most rewarding ones. The developments within the capitalist economy are accredited to the robust banking and financial infrastructure. People are often lured in by the rich lifestyle of investment bankers and traders who make fortunes with their skill set.
Well, the grass always looks greener on the other side. In reality, a lot of hard work and dedication goes into earning that fat cheque, and it's far from easy. It requires discipline and drive to achieve your goal. Let's dig deeper into trading and take a look at the prerequisites before you decide to pursue it as a career.
- 1 What is Paper Trading?
- 2 Establish a Trading Discipline
- 3 Don't Reset Your Account Balance
- 4 Earn The Amount Required For Live Trading
- 5 Start With a Realistic Capital
- 6 Create a Slippage Account
- 7 Evaluate Trading Commissions
- 8 Use Real-Time Data
- 9 Maintain Clean Trading Data
- 10 Know Your Trading Platform
- 11 Don't Enter Into Trading Competitions
What is Paper Trading?
Paper trading is the most rudimentary step in the trading profession. In the most basic sense, paper trading can be understood as day trading without actual money. The practice of paper trading originated from the stock market, where investors who wanted to practice trading used to write their investment in papers and follow the market movements.
This not only prepared them to be a good trader but also helped them save tons of money in the early stages. Paper trading is among the popular tools and tricks offered by brokers to help beginners improve their trading skills. In the contemporary world, there are many paper trading apps like Alpaca that use cutting-edge technology to help you assess your performance without losing money.
In the online trading world, it is also termed as trading on a demo account. The trading industry is very volatile, and the majority of people fail initially. The expert traders know all the hacks that exist in the trading world, like wash sales that have major tax benefits for investors. Eventually, you will learn all the secrets of the trading world. Here are a few prerequisites that you should be aware of before jumping into the world of trading, which starts with paper trading.
Establish a Trading Discipline
This is the most important thing to consider before starting with trading. Paper trading is the closest thing to the real trading experience. You need to be disciplined with your trading habits; it will help you save a lot of money when you start with live trading.
Before jumping into live trading, you should be able to replicate the N number of trades with the same strategy. N here is the total number of successful trades with the same strategy. The higher the N, the better you get.
Don't Reset Your Account Balance
You should never reset your paper trading account balance. Even if you go into virtual debt, you should focus on recuperating instead of taking the easy way out and restarting the trade.
Remember that it's not a game, you will be doing this in real life and the real world losses won't have a reset option. Bouncing back from the losses will give you a boost to start your live trading successfully. It will help you boost your confidence.
Earn The Amount Required For Live Trading
The amount of capital that you decide to put into your live trading account should not be based on how wealthy you are and how much you can afford to lose. It should be based on how much profit you can earn with your paper trading account. The more you earn with your demo account or virtual account, the more you should invest in your live trading accounts.
Start With a Realistic Capital
Most virtual accounts give you a large sum of capital to start with. Instead of moving ahead with this unrealistically large sum, you should start with a smaller amount that you will invest in live trading sessions. This will give you a realistic estimate of profits that you can earn with your live sessions and help you grow gradually into an expert trader.
Create a Slippage Account
Slippage can be understood as a cost of trading. It is usually very nominal but might affect you when the trading volume is high. Slippage is the difference between the price you expect to pay for security while placing a trade and what you pay for the same.
For example, when you place an order for a stock trading at $40, and it is executed at $40.20, the difference of $0.20 is the slippage amount. Creating a slippage account will get you more appropriate profit estimates.
Evaluate Trading Commissions
Brokerage and commissions have some impact on the real profit you earn. You should check the commission of your broker and add it in your paper trading books to keep a more realistic estimate of the income and expenditure generated from the trading process.
Use Real-Time Data
Most of the virtual trading simulators or paper trading platforms use delayed data feed. You should always focus on using real-time market data for trade simulations. This applies more strictly for people who want to start with day trading.
Maintain Clean Trading Data
You must always maintain clean trading records so that you can use it to learn and implement the knowledge in new trading strategies. It doesn't matter how you performed with your paper account. You can always learn from it if you incurred losses, you can learn to avoid the same mistakes, and if you make profits, you can replicate your strategies.
Know Your Trading Platform
You must be aware of all the shortcuts and tricks related to the trading platforms you are choosing. This will help you trade well and make proper use of your trading platforms. These hacks and tricks here are related to the application you'll be using and don't imply unethical means to practice trading.
Don't Enter Into Trading Competitions
Entering into trading competitions is a big no-no. Trading competition on virtual platforms using virtual money won't help you assess the gravity of the situation that you'll face in a live trading session. Your goal here will be to win the contest instead of learning new strategies to grow sustainably. Trading contests also have unrealistic rules, like using a specific trading instrument.